Earnings rise 28% for Exchange Bank

SANTA ROSA -- Exchange Bank on Thursday announced a 28 percent increase in annual earnings in 2013, driven by improving portfolio quality as well as loan and deposit growth.

The Santa Rosa-based bank earned $15.7 million last year, equivalent to $8.60 per diluted share. Loans grew by 8.2 percent, to $1.1 billion, and deposits grew by 8 percent, to $1.6 billion.

"We are pleased with our growth, and view it as an endorsement of the relevance and importance of local community banking," said Bill Reinking, chairman of the bank's board of directors, in a statement.

Improved portfolio quality and reduced charge-offs also allowed Exchange Bank to reduce its loan loss provision expense by 72.5 percent, to $2.5 million. Net charge-offs were $1.2 million in 2013, down 77.4 percent.

"We have been able to significantly reduce our loan loss provision as our loan quality and loan charge off experience has improved," said Bill Schrader, president and chief executive.

Exchange Bank joins other lenders operating in the current low-interest-rate environment, a condition that puts a squeeze on the ability to profit from traditional lending. Its net interest margin, viewing net interest income as a proportion of the bank's total investment securities and loans, was 3.7 percent in 2013 compared to 4.4 percent in 2012.

The bank meanwhile increased its overall return on assets, with a 0.9 percent return in 2013 versus 0.7 percent in 2012.

The bank also announced it had purchased and retired an additional $16 million in special preferred shares once sold to the U.S. Department of the Treasury as part of the Troubled Asset Relief Program or "TARP." Treasury purchased those shares from hundreds of banks to help boost their capital at the height of the financial crisis, and auctioned its holdings in Exchange Bank in 2012.

The bank spent $17 million to repurchase and retire around 45 percent of those shares at auction in 2012. The number of shares that remain outstanding was not immediately available, but the purchase in 2013 stands to reduce the bank's long-term expenses by relieving it of a corresponding quarterly dividend obligation that rose from 5 percent to 9 percent in 2014.

A 30-cent quarterly dividend paid to common shareholders on Dec. 13 meant $262,294 in new funding to the trust administering Santa Rosa Junior College's Doyle Scholarship, which owns 51 percent of the bank's common shares.

Exchange Bank had $1.78 billion in assets as of Dec. 31, with a risk-based capital ratio of 14.42 percent. Its stock trades over the counter as EXSR, with a price of $73.75 per share unchanged as of Thursday.